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We continued to grow extensively in 2017. In Slovakia, we acquired the company Millennium and made a venture capital investment and established the start-up foundation Slovak Predictive Data Science. In Poland, we set up a green-field operation of a new Soitron Group daughter company. New services and products were introduced at the Soitron Group level in the fields of IoT, automation and robotization, next generation contact centres and security. Czechoslovakia was re-introduced as a compact geographical area within the Soitron company structure to strengthen our position in these two markets. Although we introduced new products and services, Soitron Group experienced a slight decline in revenues compared to the previous year.
Millennium has been operating in Slovak and Czech markets for over 17 years and is a leading Slovak company in the delivery and administration of portal and CRM solutions. By acquiring Millennium, Soitron entered the market of CRM solutions for the financial sector. Combined with our internal development abilities in the areas of mailbots and chatbots we have strengthened our position as a major integrator of solutions for multichannel client communication.
We expect the IoT market to grow. Major investments were made into IoT solutions, mainly within the utilities and automotive industry. In addition to the above acquisition of Predictive Data Science in Slovakia, software for end-to-end IoT solutions in the utilities segment is being developed by our Turkish operation- Sekom Yazilim. We are finalising our own solution for water metering systems and, in collaboration with Sensoneo, a smart waste management provider, we have extended our IoT solutions into the area of waste management. We are continuing to build the ecosystem of IoT partners.
The “IT as a service” concept will be of major interest, mainly for mid-sized customers.
The growth in cybercrime, combined with new data protection standards will increase the already high demand for IT security. There is a global shortage of experts in this area and we want to focus more on professional services, operation support and IT security monitoring.
All “new solutions” activities within Soitron Group continue to be developed. In addition to the above IoT portfolio, Soitron has invested heavily into MOSY solutions for public security in order to provide a wide portfolio of solutions for police officers, vehicles and command centres. Its customer base has now grown to Bulgaria. Automation and robotization trends are reflected in Soitron’s mailbot and chatbot solutions for new generation contact centres.
Soitron group has also grown geographically and opened green field operations in Poland – the strongest European nearshoring market, which we had not operated in before. The Polish market combines the potential of a big geography and a very developed market in the area of delivery centres.
In the Czech and Slovak Republics we have decided to join forces and combine our operations and customer base within the company structure since 1 January 2018. This was done to accelerate growth within these two markets and strengthen our position as a leading IT provider. Major preparations for this merger took place in 2O17.
Our managed services and IT outsourcing business line has been slowed down by our largest customer HPE transitioning to DXC. Investments have been made to accelerate our services in Poland. In Datanet Romania, we have been successful with developing the outsourcing line of business. In both Poland and Romania we started the hiring process and the outlook for the future is promising.
2017 financial results were influenced by a slowdown in project deliveries on our two major markets. In Turkey, the project life-cycle reached its bottom after having peaked in 2016. In Slovakia, results were negatively affected by prolonged procurement cycles in the public sector. In spite of these facts, we kept healthy financial results. Soitron reached the EBITDA of EUR 5.93 million and kept decent EBITDA to revenue ratio of 5.71%.
In 2017 we made a major re-design of the company’s strategy in two areas.
We have reinforced our efforts an investments in new product development, spinning them off the operational business units and creating New products BU. Our main focus was on IoT solutions for utility providers, IT automation and new generation contact centres. Anticipating market demand, we are building all of the above products “as a service”, allowing our customers to have more flexibility in their approach to innovation.
Based on our ambition to accelerate growth in the Czech market and considering the size of the Slovak and Czech IT market, we decided to merge our operations into one organization. As of January 1st 2018, Soitron Slovakia and Soitron Czech Republic have been merged into a single operational unit – Soitron Czechoslovakia. Our customers will benefit from seamless service delivery, regardless of where the talent and skills are available. This also allows us to have even more specialized experts, thus offering more advanced expert services and products for both the Czech and Slovak market.
The local IT market is going through a transition period – continually growing cloud services have resulted in infrastructure being perceived differently and we also see the advent of IT automation. Soitron strength has always been in IT infrastructure services and recently we also added IT Advisory and ITSM/ITBM services to our portfolio. This creates large opportunities for us in optimizing IT operations through software automation and self-services.
In Slovakia, the lack of funding for public sector projects adversely influenced our growth ambitions. Strategic planning of these projects is nearly impossible, as this sector is strongly affected by election cycles, as well as by EU funding program periods. We were not able to counterbalance this phenomenon even with our strong results in other market segments, thus achieving a lower revenue and EBIT compared to 2016.
In 2017, the turnover of our Czech subsidiary continued to grow, achieving the annual turnover of EUR 7.8 million, representing year-on-year growth of 9%. The strategy implemented 2 years ago proved to be a good step forward
We expect rapid growth in the following years, as major investments have been made into company development, sales teams and product and service development. As of 2018 Soitron Czech republic has become part of the new organisational structure of Soitron Czechoslovakia operating in both markets as a single company.
In Romania, the year 2017 was characterised by public sector investment funds suffering a decline, intense competition and a demand for skilled IT specialists which far exceeded the market availability.
In this challenging business climate, Datanet ended the year with revenues of about EUR 22 million and an EBIT of 5.7%, accomplishing 92% of its revenue and gross margin objectives.
Datanet continued to have the leading position as a Cisco partner in the Romanian market and increased its number of customers.
In 2017, the company improved the organization of its new outsourcing division in order to prepare for growth in this business area.
Due to the acquisition of Uya Bilisim, a local cyber security solutions company with a strong foothold in the Turkish security solutions market, back in September 2016, Sekom was able to successfully integrate a Security Business Unit in 2017. Additionally, Sekom has integrated its subsidiary Linuxera, a market leader in the field of open source enterprise IT solutions, into Sekom organization as a separate SD-X & Cloud business unit. Hence, via these two business units, Sekom has not only broadened its portfolio of solutions but has also increased market coverage and market acceptance.
New partnerships formed to address current and new customers’ requirements. In support of marketing embracing different market segments, Sekom has successfully launched market awareness programs not only through workshops and round table events, but also proactively executed digital marketing campaigns.
Sekom’s overall logistics and administrative operations, such as inventory, warehousing, finance, accounting as well as company specific electronic applications for vouchers, advance payments, annual leave have been integrated into a common ERP platform which resulted in a more effective control of overall operations. Sekom has also replaced its call tracking system with an internally developed technical operations centre platform, allowing for full-fledged reporting and activity logging facilities.
In 2017, 2Ring strengthened its position as one of the leaders in add-on solutions for Cisco Contact Centers. As in 2015 and in 2016, revenue from the North American market nearly doubled. Revenues from the European market remained the same as the revenue structure has now shifted significantly from UC solutions to Cisco Contact Center related products. This follows the same trend 2Ring experienced in the North American market in the past, where 95% of revenues currently come from add-ons to Cisco Contact Centers. 2Ring’s short-term outlook for additional growth is promising. A vast majority of Cisco customers using Cisco Contact Centers have not yet migrated to the Cisco Finesse platform. As a result, Cisco invited 2Ring, a developer of market-proven add-ons for Cisco Finesse, to Cisco SolutionsPlus – a program that places carefully selected products on the Cisco price list. The Cisco sales force and the entire network of Cisco resellers can offer 2Ring products to improve the appeal of the Cisco Finesse platform and to facilitate the migration process of existing Cisco customers. In the long term, 2Ring is exploring synergies with other ISVs whose proven solutions could be brought on to the Cisco Finesse platform.
Poland has long been a perspective geography for Soitron to grow to, as the market represents an important location for outsourcing services. Even though the market is saturated and the offer of managed outsourced services is rich, we see a high potential in opening our operations in Poland. In 2017, our branch in Warsaw was opened and the goal for 2017 and 2018 is to develop business and set up recruitment capability in Poland, while focusing on nearshoring, staffing as a service and developing software as a service competency. Brandbuilding via events and online visibility is also an important part of the plan.
On May 4th, 2017, Millennium became a part of the Soitron Group. This new partnership was not only the biggest change in Millenium's history, but also opened the door to brand new collaborations and the international market. Millennium reaffirmed its position on the Slovak and Czech CRM markets, with more than 43% of its gross margin earned from this fast-growing segment.
From the industry point of view, Millennium was highly active in the financial segment, reaching more than 67% of its gross margin.
With more than 33% of its gross margin coming from outside the Slovak Republic, it is clear that diversification of activities across different countries played a key role in the company's development in 2017. Recent investments and development of the Czech market turned out to be the right move and Millennium experienced a significant growth in the Czech Republic in 2017.
Soitron Group achieved following results in the selected indicators (in million EUR):
| Type | 2016 | 2017 |
|---|---|---|
| Equity | 40.7 | 36.2 |
| Revenue from Sales of Goods | 55.6 | 50.6 |
| Revenue from Sales of Own Products and Services | 72.2 | 53.2 |
| Total Sales Revenue | 127.8 | 103.8 |
| Operating Profit (Loss) | 9.2 | 5.7 |
| Profit before Tax | 10.4 | 4.7 |
| Number of Employees | 753 | 813 |
| ROE (Return on Equity) | 18.7% | 4.5% |
| Return on Sales | 7.4% | 2.5% |
| Gross Profit | 33.3% | 33.2% |
